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Why Investors May Want to Buy Cott Corp. as it Reinvents Itself

Cott Corp. (TSX:BCB)(NYSE:COT) has been public for quite a long time, but many Canadian investors have probably scratched the small-cap stock off their radars because it’s been known as an “off-brand” pop business which has been trending down over the last few years.

Sugary sodas were once known as an everyday staple. It’s how Warren Buffett made so much with his long-term investment in The Coca Cola Co. (NYSE:KO). The soda business seemed like a safe play that probably wouldn’t change too many decades down the road, but, unfortunately, consumer tastes have changed in recent years, and the pop business has been an extremely difficult industry to thrive in.

Fortunately for Cott, the management team knows how to adapt, and they’ve shifted gears and are now concentrating on the coffee, tea, and water, which are beverages that are much more popular with the general public, which has become more health conscious.

Generic, off-brand soda-bottling companies sound like a disastrous investment at current levels, and that’s exactly what Cott was until recently. But how about an innovative company that uses tech to reinvent how the average person consumes their favourite healthy beverages like coffee, tea, water, or even soda? That’s what Cott has transformed into, and this is why the stock deserves the attention of Canadian investors today.

What’s the deal with such the huge business model change?

Unhealthy, sugary sodas are trending down. They have been for years, and Cott could either sit back and see its stock get pummeled or adapt to the changing demands of the average consumer. Doing the former would have been a risky proposition because the soda downtrend is probably a long-term one, and it’s a mystery as to when or if soda will ever be popular again.

The management team at Cott didn’t want to wait to find out what would happen, so instead, it went all-in on healthy beverages, so it could diversify away from its legacy pop business. I believe this is a smart move, not just for the near term, but for the very long term, especially since Cott can always go back to its roots down the road. Coffee, tea, and water are staples that are necessary staples in the lives of many consumers and probably won’t face a major downtrend like pop did.

Bottom line

I’ve never been a fan of Cott, but after its recent transformation, I think investors should be keeping BCB on their radars. The company has been working on its AquaCafe beverage dispenser, and it could be a major hit as it rolls out across the country. The generic beverage dispensary business is ridiculously competitive, so we’ll have to wait and see if Cott can really thrive with its new focus on healthy drinks.

Stay smart. Stay hungry. Stay Foolish.

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Fool contributor Joey Frenette has no position in any stocks mentioned.

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